The bottom line of the Ministry of Finance's report on the budget performance and tax revenues for the first quarter of 2013 is simple: the rate at which the deficit is growing is picking up speed. The deficit for the 12 months through March rose to NIS 42 billion, or 4.5% of GDP. Both figures are higher than the ones for the end of 2012.
It can be assumed that, very soon, Minister of Finance Yair Lapid, will appear before a cabinet meeting equipped with a presentation that will include the new numbers. His message to his colleagues will be straightforward: if you don’t take far-reaching measures, the deficit will continue to grow. We can assume that the presentation's main slide will include the estimated date at which the deficit will exceed 5% of GDP, which will set off alarm bells.
To remove any doubt from the ministers' minds about the future policy measures, the Ministry of Finance's Budget Department mentions the main cause of the ballooning deficit: public sector salaries and welfare payments, which were 10.2% higher in the first quarter than in the corresponding quarter of last year.
The new government should translate the significance of the numbers into policy: avoid the pay hikes in the recently signed labor contracts; and cut welfare payments, which will wipe out the increases awarded in the response to the social protest of 2011. Lapid will make sure to call these measures "temporary", but anyone familiar with the Budget Department knows what "temporary" means.
Since the budget debate in the public and the government is supposed to be based on detailed data, it is necessary to examine not what happened in a single quarter, which was strongly affected by salary agreements with workers who earned low salaries for years, but the budget items which have ballooned in recent years. On this point, it is recommended to reread the Bank of Israel's Annual Report for 2012, which states that the increase in welfare payments and civilian expenditures were supposed to be financed by cuts in the defense budget, which were never made. Moreover, the government actually increased defense spending.
But the defense budget is not alone. We can assume that other items in the state budget ballooned in recent years. The problem is that the government meticulously concealed the figures, so that no one, except for the few people in on the secret, knows what really happened to the budget during the previous government.
In the framework of the Israeli government's new politics, we have taken a step closer to a debate on an 18-month state budget. One thing is certain: the debate will be marvelously similar to what we have become inured to under the long years of the "old politics". The media will talk about austerity, the ministers will mention the fictitious Riki Cohen of Hadera, and we will be left with no real public debate about priorities.
Published by Globes [online], Israel business news - www.globes-online.com - on April 8, 2013
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